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SECRETS TO SUCCESSFULLY STARTING YOUR OWN BUSINESS

The American Dream has always been the hope of coming up with a new and attractive idea, starting a business, and becoming fantastically rich from your own efforts. Even with this motivating goal thousands of businesses fail each year, primarily out of ignorance of the basic skills necessary to run a business.

This brief report will inform you of the basic business skills, and will give you a number of suggestions that you can use to better guarantee your chances for success. Be forewarned that any and every business venture contains certain inherent risks in any number of alternatives. The report does not imply that any one way is the right method, nor does it propose that these suggestions are the only way. On the contrary, it is advised that before investing substantial sums of money in a business venture you seek counselling and help from a qualified accountant and attorney.

The first thing you should consider before deciding to start or purchase a business is the legal form under which you'll be operating. There are basically four choices:

(1) Sole Proprietorship
(2) Partnership
(3) Limited Partnership
(4) Corporation.

Each choice has a number of advantages and disadvantages. This report will seek to enumerate the pros and cons of each system.

For many people, starting a business is a form of ego gratification, and they form a corporation because it sounds prestigious -- just to say, "I own a corporation." With just a little observation you'll find that one major cause of business failure is wasting start-up capital on frills such as an impressive store-front office, expensive furnishings, and corporate legal costs. To be successful in business, you must establish a tight hold on your expenditures. In fact, as a rule of thumb anything that does not make money for you or protect your investment should not be purchased. This axiom definitely applies to the expense of setting up your own corporation.

Unless you have a partnership and start your business as such, the only advantage to forming a corporation is that a corporate structure will partially protect your personal property should a financial calamity befall the business. For example, you own a home and car. You form a corporation to protect these possessions from business losses. Yet, if you can be found guilty of misusing corporate funds, your business creditors can pierce the corporate shield and win a judgement against your possessions. If you have invested everything you have in your business, as most newcomers do, you don't usually need a corporation because you have nothing to protect. Your household possessions, personal belongings, and most likely your car and a portion of the equity in your home are protected by the homestead provision of the Federal Bankruptcy Act and cannot be taken away from you.

As a sole proprietor or partner of a business, you'll be paying taxes on your overall earnings in much the same way as if you were holding down a salaried or hourly job. Whether or not you take out money as a salary will have no bearing on the earnings of your business and tax return. The often advertised advantage of incorporating is that you can manipulate your salary in order to save on tax dollars. However, the IRS frowns on this practice. After your business is successful and making a lot of money, check with your accountant on the advantages of incorporating.

As a corporation, your company will be subject to a number of other drawbacks: higher state taxes, stricter business operation laws, more elaborate accounting procedures, and the filing of required legal papers just about every time you make a major move or sign a contract. Thus, your legal and accounting fees are generally much higher as a corporation than as a sole proprietorship.

As a sole proprietorship, you'll find many cities require the registration of your business name. The cost however, is minimal, ranging from $5 to $100. The best way to find out what laws apply in your area is to call your bank and ask if they need a "fictitious" or "assumed" name registration card or certificate in order for you to open a business account.

Selecting a name for your business is important, particularly in relation to your advertising. Your business name should describe the product or services you offer. Fancy names such as, Linda's Clipping Service will lose potential walk-in customers to the beauty shop across the street that calls itself Patti's Beauty Salon or Jane's Hair Styling shop. The use of your full name in the title of your business, such as Johnny Jones' Meat Lockers, has the advantage of making credit somewhat easier to come by, provided you pay your bills on time. However, there is also the disadvantage of confining your services to a local or regional market.

Should you buy, lease, or rent space for your business? Consider this decision carefully. Most businesses tend to grow quickly or they never get off the ground. There are a few exceptions that grow at a modest rate, but these are few. Thus, buying a piece of property and setting up your business on or within that property obligates you to ownership regardless of what happens to your business. However, leases are also a risk. Most leases are strong contracts written to the advantage of the property owner. When you sign an agreement to pay someone for the use of their space over any length of time, you're agreeing to pay for that space regardless of what happens to your business. Therefore, in the beginning it's wise to either get the shortest-term lease possible or arrange to rent with an option to lease at a later date. If your enterprise is a retail business, however, seek out a short-term lease in a prime location.

Immediately after you decide to open your business, open a business bank account. Scout around and look for a bank that can and will help you with your financial needs. Determine what your banking needs will be and then telephone the managers of the banks in your area. State your needs and listen to their suggestions. It is important to be selective in choosing a bank and not to simply choose the most convenient bank to your business location.

The closer you can make the relationship between you, the bank staff, and the bank manager, the better your chances are going to be for approval on loans or special favors you may need at a later date. Try to become acquainted with as many of the bank employees as possible. The better you know them, the more special courtesies they'll be extending to you in the course of your association. Just as a doctor is a specialist in his field and you go to him for medical problems, your banker is a specialist in his field and you should consult with him concerning your money problems. You'll find that very often, different banks specialize in different types of businesses. Some prefer real estate transactions, export-import businesses, or manufacturing operations. Thus, if you're planning to sell a fairly expensive item your customers will probably need and want financing. It will behoove you to select a bank familiar with your type of product and that will extend to your customers, through you, contract financing.

Some of the questions you should ask of your banker include:

Is it necessary to maintain a certain balance in my account before the bank will approve a loan for me?

What qualifications must I have in order to obtain a line of credit with the bank?

Does the bank limit the number of loans or types of loans it will approve for small businesses?

How quickly will my deposits be available for transactions?

Is this type of account interest bearing? What is the interest rate?

Is there a monthly service charge or a limit to the number of checks I can write each month?

In almost all types of businesses it will be to your benefit to set up with your bank a method of handling VISA, MasterCard, Discover, American Express, and regional credit cards. The best method is to establish an account that will service all of these credit transactions for you - one stop for all your banking needs. In most instances you'll find that having the capability to fill orders and make sales via credit card transactions will increase your volume of sales appreciatively.

Once you've decided which bank is going to handle your account, you'll need your Social Security Number or your Federal Employer's Identification Number, your driver's license, the fictitious name certificate, and, if you're requesting a VISA or MasterCard franchise, you'll also need a financial statement. For corporations, you'll also need a corporate resolution approving the opening of your business account.

Different policies exist regarding installation and hook-up charges by the telephone and utility companies. Some require a deposit, and others do not. Consult with each utility concerning these fees.

City business license departments are designed both to regulate the operation of specific enterprises and to collect additional tax revenue for the city. Depending on the type of business for which you're asking a license, the building and zoning commission may wish to inspect your premises for soundness of structure and safety. Generally, you won't encounter any difficulties. You simply pay your fee to establish your business in your city, and the clerk enters your name onto a city license certificate.

Each state's rules and regulations vary widely relative to sales tax permits and licenses. It is best to call your state comptroller's office and ask for information concerning registry and collection procedures. Many states require an advance deposit or bond, and you'll find that some wholesalers or manufacturers will not sell to you at wholesale prices until you can show them your sales tax permit or number. Should your business entail selling your products or services across state lines you generally are not required to collect taxes from your out-of-state customers. However, a number of states, particularly in the northeastern United States, have implemented laws insisting upon collection of taxes for sales made to business in their state, although this requirement generally does not apply to small businesses with gross sales under five million dollars. Thoroughly check into the applicable laws in your area. You may also find that your particular business requires the collection of Federal Excise Taxes. For information, check with your local office of the Internal Revenue Service.

Some states require certain businesses to hold state licenses for trades such as plumbers, barbers, hair stylists, real estate agents, or television repairmen. These are known as "occupational permits". If you have any doubts, check with your state offices for a list of those occupations that require licensing.

Any business operating interstate is subject to federal regulations, usually through the Federal Trade Commission. This means that any business that sells or advertises in more than one state is subject to such regulation, including even the smallest of mail order operations. Normally, very few business people ever have any contact with the federal regulatory agencies. The only exceptions being when there is a question of operating your business unethically or illegally. If you operate a mail order business, the majority of your contact with the federal government will come through the Postal Service. If you have any questions regarding the legality of the items you sell via mail, check with your local Postmaster. Should a complaint be filed against you, you will receive notification from the Postal Inspector in your area. You can avoid any problems or business interruptions by checking in advance with the authorities concerning your business activities.

Any business that sells or distributes food in any manner requires a county health department permit. If your business falls into this category, simply call the county health department and invite them out to your place of business for an inspection. The fees are generally around $25, depending on the size of your business when it is first inspected for permit approval.

Several other regulations may apply to your new enterprise. There are a number of businesses that require inspection by a fire marshal. Businesses that handle flammable materials or attract large numbers of people, such as a theater, fall into this category. in general, the local fire department has to be allowed to inspect your premises whenever they desire to do so, whatever your occupation. If you are a manufacturer, you may be required to apply for an air and / or water pollution control permit. These regulations control any business that burns or discharges anything into the air, sewer or waterway systems, or use any gas-producing product, such as a paint sprayer.

Check on local regulations regarding advertising display signs. Each city or township makes its own rules and then enforces those rules according to its own thinking, so check before you contract to have a sign made for your business. The design and placement of your sign is very important to your business, especially to retail establishments. Remember, however, your business sign is usually the first thing a potential customer sees and as such should catch his eye and leave a lasting impression. It would be a good idea to drive around your town and take a look at the signs that catch your eye. Try to determine the impression of the business that a sign leaves on you. This is a basic learning process for determining the design, size, and placement of your business sign.

If you intend to employ one or more persons you'll be required to deduct federal income taxes and Social Security taxes from their checks. This will involve your filing for a Federal Tax Number and necessitates contact with your local IRS Office. Most states have unemployment and disability taxes which you will be required to pay as an employer. A number of states have state income taxes that you may be required to deduct from an employee's pay. Again, the best thing to do is check with your accountant or the local office of the IRS. Above all else, you must comply with the rules governing the minimum wage law.

When your business grows to the point of needing additional help, don't be afraid to seek and hire the help you need. When you're ready to hire someone, simply run an ad in your local paper and/or register your needs with the local office of your state's employment service. Local colleges are also a source of good employees. Businesses either grow or die, and those that grow eventually need more people in order to continue their success. When that time comes, hire the additional people you need and your business will continue growing. If you don't, for whatever reason, you'll find yourself married to your business and your business growth stymied.

Regardless of how small your business is when you begin, never walk in with the thought in mind that it's only something to keep you busy in your spare time. Anyone with an attitude of that kind is foolish. You begin and make a business successful in order to realize financial freedom. Establish your business with that goal as your motivation. Put it on its feet and then hire other people to do the work for you. For those businesses that require an operations manager or someone to run a phase of the business that you are too busy to handle, find a qualified manager and pay him/her sufficiently or the business will surely suffer.

To protect the financial investment in your business, you may want to purchase business insurance. If you've never had any experience with business insurance, simply look under that heading in your phone directory. Ask for bids from several different companies or agents. Basically, you should have a policy that gives you general liability, fire, workmen's compensation, business interruption, and vehicle coverage. You may also want coverage against possible losses related to burglary, robbery, Life & Accident, Key Man, and Fidelity Bonds.

As the sole proprietor of a business, you will not be paid as an employee, so there will be no income tax deducted from whatever you withdraw from the company's earnings. Check with the IRS Office for a Tax Guide For Small Businesses Handbook. This will instruct you as to how you can file estimated tax returns on a quarterly basis.

The minute you open your doors for business, you'll have to spend some time engaged in the work of bookkeeping. Exactly how you keep books and using what forms should be on the recommendations of a good tax counselor. The same holds true for your overall business and payroll accounting system. Look for an experienced CPA that knows the accounting intricacies of your particular kind of business and solicit his advise and counseling. If your business is going to involve the possible purchase or lease of operating equipment, again seek the help of your accountant for the most advantageous method of obtaining the needed equipment.

Arranging for your suppliers to give you materials on credit will depend upon your honesty and personal financial statement. The best way is usually a visit to the person with the power to approve or disapprove credit at the company where you want to set up an account. Show him your financial statement and explain your prospects for success. Assure him that you've always honored all of your obligations and that if ever there's a question or problem you'd like for him to call you at home. Most will be willing to extend you a credit line and bill you as goods are shipped.

We won't go into the importance of advertising your products, services, or business here, but there is something along these lines you should always keep in mind. The best kind of advertising your business can receive is that for which you do not pay - publicity. When something unusual happens to you, your business, or your employees, that's news. Be sure you tell the news media in your area about it.

In closing, the most important ingredient of your eventual success will be the soundness of the planning you did before you started your business. Any number of bad things can really throw your business into a tailspin, but if you've done your homework well and set up a detailed business plan before starting, your setbacks will be minimal. Success takes planning, and this report has given you a basic checklist. The rest is up to you. Good luck, and may you succeed with your planned business venture.
7

Copyright 1991 by Premier Publishers, Inc, USA. All rights reserved.
No part of this publication may be reproduced by any means without the express prior and written permission of the publisher.

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